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What do all of these things have in common? Cheese, gin, shaving sets, flowers, jewellery, cars… the list goes on. The subscription model is the largest trend in retail, offering a new way to enjoy all sorts of products and allowing customers change their preferences at a moment’s notice.

With such a huge range of versatile options, it’s no wonder that the corporate giants of this world such as Amazon, Apple, and Google are getting involved. However, you don’t have to be a multinational conglomerate to capitalise on this trend; many businesses, big and small, are rolling out a subscription model. Here’s why:

 

Rethinking Ownership:

Customers are dramatically rethinking the way that they own things[1]. This doesn’t just impact cars - where the norm is to put down your deposit, pay your monthly fee, and then buy the car in another lump payment at the end. The monthly model is now available wherever you look online. Services such as the Swedish owned Klarna[2] are popping up to offer customers different purchasing models. The Swedish company has grown dramatically in the last few years, and offers an interest free way for shoppers to spread their upfront payments across three, six, or up to 36 months. Klarna has raised over $1.2bn in funding since 2005[3].

Average car lease is three years, and for modern millennials life can move pretty fast. Millennials make up a quarter of the population, and are notoriously difficult to sell to. This comes from their quickly evolving lives; a two-door city car gets rapidly outpaced when kids and dogs start coming along!

 

Online Expectations:

Customers are much more likely to buy online in 2020, with 59% of all payments currently being made digitally and online[4]. As a customer, once it was possible to order a book online and have it delivered in a few hours, or to buy a film and stream it immediately, it becomes an expectation; customers start to ask why they’re limited for other products.

Alongside this dramatic rise in online purchasing comes increased trust in online products. Nowadays, you’re far less likely to walk into a flower shop and come out with a bunch of roses on a whim. Instead, we trust that a last minute click on an online flower delivery store will ensure the timely arrival of a bunch of beautiful flowers straight to our front door.

The same is true with buying cars. While their announcement and subsequent debut has caused a stir in the industry, the launch of Cazoo[5] suggests that customers don’t need to physically drive, sit in, touch, or even see a car before they’re ready to make a purchase. This is because we place more and more trust in online retailers.

In turn, this increased trust means that customers are happier to sign up to subscription services for tangible goods too. Thanks to online flexibility, going digital with physical products is not just becoming easier, it’s becoming the norm.

 

Increased Flexibility:

Speaking of flexibility, subscription packages continue to perform well for customer loyalty[6]. In the last year, Amazon’s retail division (which has just launched a ‘subscribe-and-save’ service) topped customer loyalty rankings. Netflix and Amazon’s video streaming services also make the top ten. But while it’s clear that subscription services are well received by users, what does this mean for smaller businesses?

A key trend in business is that customers are looking for easy access and flexibility at the touch of a button. As a result of this flexibility, users are losing their sense of loyalty to everyday brands[7]. 90% of top brands have seen a declining market share as customers head elsewhere for more unique and tailored options.

Now is the time for small or medium sized businesses to show how they can offer something a bit different, more tailored, and more flexible to customers leaving the big brands.

 

The Complete Package:

Subscription products offer a complete package to customers, all in one tidy price. While it would be nice to pay my gas, electricity, internet, council tax, and other bills once a month in one round sum (these services do exist but I haven’t quite found my perfect fit yet), I find myself trying to juggle several comparison sites, all with their own offers and deals. It’s overwhelming!

This changes with subscription services. They offer maximum choice with minimal stress, and deliver the complete package. Take Wagonex, for example: when you take a car with us we use a dedicated underwriting partner to ask less than ten questions, you scan your driving licence, and you’re good to go. Your monthly fee covers the car itself, the insurance, the tax, breakdown coverage… basically you just have to add fuel. Simple as that.

 

Try before you buy:

One of the most common requests we get are for our electric cars - our Nissan New Leaf is one of the most browsed vehicles we offer, and I don’t think this will change any time soon. Users are clearly attracted by an environmentally friendly alternative, and take out these cars on short subscriptions, treating our service as a ‘try before you buy’ deal.

Subscription services let customers take a car for a spin, not only for an hour around the local area, but on their own terms. Along a beach, up a mountain, through a ford - these aren’t normal places for your test drive to take you. But by subscribing to the car on a six-month (or less) contract, you can give it a proper go.

When we look at the figures for electric vehicles, it’s clear that users are giving them a go but don’t know if they want to commit. They want to know how if they can charge the car in the rain, how long it takes to charge, or how the car sounds and feels to drive on a three or four hour journey. These aren’t questions easily answered in a thirty-minute test drive around the block.

 

What does it mean?

So customers are waking up and rethinking how they own, and how they pay, for luxury goods. This has hit the automobile industry the hardest, and new car registrations have fallen year on year since 2016[8]. This attitude is not held by me alone; many believe that the 17 million millennials in the UK are squeezing modern dealerships as they “don’t buy cars”. However, a recent study suggests that it isn’t that this massive demographic don’t want to buy cars, instead they don’t want to buy cars outright[9].

Millennials make up a quarter of the UK’s population, and Gen Z will follow hot on their heels: businesses up and down the country need to consider future-proofing their revenue streams with versatile new products designed to meet the needs of this new audience.

Subscription is on the up; 2020 is the year that this takes off, and I firmly believe that by looking into subscription services it’ll be a winning year for all sorts of businesses. Nearly every industry is exploring the possibilities and capabilities of this cutting edge business model. It’s not replacing traditional methods quite yet, but in 2030 I have a feeling we’ll look back and say “that’s where it started”. Subscription isn’t just for Netflix or the gym anymore - it’s coming faster than you might imagine.

 

 

 

[1] https://www.ft.com/content/d80f738a-5824-11e7-80b6-9bfa4c1f83d2

[2] https://www.klarna.com/uk/

[3] https://www.crunchbase.com/organization/klarna

[4] https://techcrunch.com/2019/06/11/internet-trends-report-2019/

[5] https://www.cazoo.co.uk

[6] https://www.marketingcharts.com/charts/2019s-top-brands-by-customer-loyalty/attachment/brandkeys-customer-loyalty-leaders-in-2019-sept2019

[7] https://www.forbes.com/sites/kathleenkusek/2016/07/25/the-death-of-brand-loyalty-cultural-shifts-mean-its-gone-forever/#3daf3cb14dde

[8] https://www.statista.com/statistics/299240/volume-of-new-passenger-cars-registered-in-the-united-kingdom/

[9] https://www.forbes.com/sites/jacknerad2/2019/03/24/millennials-vehicle-choices-the-result-of-several-factors-study-says/

Further Reading